New Italian government seen within days

ROME (Reuters) - Respected former European Commissioner Mario Monti looked set on Thursday to be appointed within days to head an emergency Italian government, as politicians rushed to combat a crisis threatening the entire euro zone.

Political sources said Monti could be appointed to replace Prime Minister Silvio Berlusconi by Sunday and would then in short order form a unity government comprised of politicians and technocrats to push through a tough austerity program.

Dithering politicians seemed finally to have been galvanized into action after Italy's borrowing costs soared way above sustainable levels on Wednesday, and earlier opposition to Monti among ruling politicians was evaporating as they scrambled to end uncertainty stoking the crisis.

Even Berlusconi, whose insistence on early elections after he steps down had fueled Wednesday's disastrous day on bond markets, has been persuaded it would be better not to go to the polls now, sources in his ruling PDL party said.

The timetable imposed by an alarmed President Giorgio Napolitano could see a broad-based government as early as Sunday night or Monday following Berlusconi's resignation at the weekend, ending the flamboyant media magnate's 17-years of political dominance.

Organizers of a conference in the Netherlands at the weekend said Monti had pulled out at the request of Napolitano and a political source in Rome said he would meet the president on Thursday night.

Monti, 68, who is highly respected internationally, has been pushed by markets for weeks as the most suitable figure to lead a new government. The sources estimated he had a 90 percent chance of being appointed.

Italy managed to sell 5 billion euros ($6.8 billion) of one-year bonds on Thursday, but had to pay a whopping 6.087 percent interest rate, the highest in 14 years. Nevertheless the successful auction and prospects of a rapid solution to the political stalemate appeared to calm markets.
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